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Vol. 15, No. 23 Week of June 06, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Supreme Court jumps in

Justices agree to take DNR appeal in fight for Alaska’s Point Thomson gas field

Wesley Loy

For Petroleum News

Back in January, ExxonMobil had cause for cautious celebration after winning a key court ruling in its tussle with the state for control of the rich Point Thomson field on Alaska’s North Slope.

Now the tide has turned as the courts have given state officials a reason to smile.

The Alaska Supreme Court on May 28 agreed to entertain an unusual appeal from the state Department of Natural Resources.

Department officials hope the high court will overturn Anchorage Superior Court Judge Sharon Gleason, whose Jan. 11 ruling delighted ExxonMobil and seemed to stagger the DNR and its lawyers.

ExxonMobil’s attorneys had urged the Supreme Court justices not to get involved in a case that has yet to run its full course in the lower court.

But the Supreme Court — with Justices Dana Fabe, Daniel Winfree and Craig Stowers participating — granted without discussion the DNR’s petition for review of the Gleason decision.

“This changes the momentum,” said Kevin Banks, director of DNR’s Division of Oil and Gas. He noted, however, that no one in DNR is ready just yet to proclaim victory in the case.

High-stakes fight

The state since 2005 has been moving to break up the Point Thomson unit and invalidate the underlying leases on grounds ExxonMobil and other leaseholders have failed after decades to develop Point Thomson’s known resources.

The leaseholders in turn have been fighting the state through administrative and court proceedings.

Point Thomson sits on state acreage some 60 miles east of Prudhoe Bay, and is believed to contain 8 trillion cubic feet of gas and hundreds of millions of barrels of petroleum liquids worth billions of dollars.

In a ruling that came as a heavy blow to state officials, Gleason reversed DNR Commissioner Tom Irwin’s termination of the Point Thomson unit and held that the leaseholders were wrongly denied an administrative hearing under a key section of the unit agreement.

Attorneys for DNR, in appealing to the Supreme Court, argued Gleason erred in nullifying Irwin’s unit termination. They also said her ruling would needlessly force a very long, technical and expensive administrative hearing.

David Eglinton, a spokesman for ExxonMobil in Houston, provided this statement to Petroleum News on the Supreme Court action: “ExxonMobil remains confident in our position regarding the unit termination case. Our preference is to settle these issues directly with the State to avoid protracted litigation and to put Point Thomson resources on production.”

Despite the court conflict, ExxonMobil, with Irwin’s permission, is moving ahead with a limited gas cycling development on two Point Thomson leases.

ExxonMobil in recent months has drilled a pair of wells and plans to test them soon. The wells are part of a promised $1.3 billion gas cycling project to produce 10,000 barrels a day of condensate by year-end 2014.

Other major leaseholders at Point Thomson include BP, Chevron and ConocoPhillips.

Banks, in a May 28 interview with Petroleum News, said the shifting court decisions affect what have been ongoing talks with ExxonMobil to try to resolve the Point Thomson conflict.

“We’ve always been engaged with Exxon,” he said. “The issues are pretty complicated and any kind of agreement is going to have to work for both parties.”

A new kind of pressure is beginning to mount for both sides, as ExxonMobil soon must place long lead-time orders to meet its 2014 production goal. The items include extremely powerful, custom-designed compressors for pushing gas back down into the high-pressure Point Thomson reservoir after condensates are collected.

The company would like to know where it stands overall on Point Thomson before placing those costly orders.

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